This copy is for your personal, non-commercial use only. To order presentation-ready copies for distribution to your colleagues, clients or customers, click the "Reprints" link at the bottom of any article.

May 7, 2012

Sarkozy, Austerity Are Losers in E.U. Elections

Votes in France, Greece and Germany punish harsh measures

Europe could be in for change, if voters in three different countries over the weekend have anything to say about it. In France, Greece and even Germany, they ousted candidates who supported austerity and opted instead for messages advocating growth.

Bloomberg reported Monday that in France, President Nicolas Sarkozy went down to defeat by Socialist candidate Francois Hollande, who ran a campaign that espoused growth, not cutbacks, and said after the results were announced that he would persevere in promoting growth.

Sarkozy was the first president of France in more than 30 years to fail to win re-election, and his was the ninth head to roll in the past two years in the euro zone as turmoil over the debt crisis exacted its toll on government leaders.

Hollande is the first Socialist in 17 years to win control of France’s government. He took approximately 52% of the vote, and told supporters after the election, “Europe is watching us. Austerity isn’t inevitable. My mission now is to give European construction a growth dimension.” He promised to pursue growth rather than austerity.

He could have a tough time delivering on that pledge, depending on the outcome of elections for seats in the lower house of Parliament scheduled for a few weeks from now. Sarkozy’s party has vowed to keep fighting, and they could make it difficult for Hollande to turn his back on austerity policies—although, according to Alastair Newton, political analyst at Nomura International in London, it is more likely that Socialists will win there too, offering Hollande a more “left-leaning stance.”

Greece too chose to repudiate austerity, giving an unexpected amount of support to the Syriza party and putting it ahead of the Pasok party of Evangelos Venizelos, who negotiated the country’s second bailout package. Syriza means “Coalition of the Radical Left,” and its leader, Alexis Tsipras, said in the report, “The people of Europe can no longer be reconciled with the bailouts of barbarism. European leaders, and especially Ms. Merkel [Chancellor Angela Merkel of Germany], should realize that her policies have undergone a crushing defeat.”

Although Syriza came in second, its unexpectedly strong showing gives it clout that could make it difficult for the government to keep promises it made in exchange for that second bailout. Tsipras, who is determined to stop the bailout, also urged Greeks not to be “blackmailed” by threats of a departure from the euro. Just two weeks ago he was quoted saying, “The crisis isn’t just Greek, it’s European.”

He added, “There will either be a collective, sustainable and fair European solution to the public debt issue or it will collectively fall apart. The Greek people should understand that this blackmail is false and they must stop blackmailing them with a supposed exit of just Greece without the destruction of the euro.”

Germany saw its share of protests as well, as in regional elections in the northern German state of Schleswig-Holstein Merkel’s party suffered its worst showing in over 50 years. Failure of the Christian Democrats to retain control in the state could affect Merkel’s chances of reelection in 2013.

Regional elections were also held in Italy on Sunday and Monday, although results were incomplete on what the Italian government reported as low turnout on Monday morning. Pushback against Prime Minister Mario Monti and his austerity policies had been expected, although such results would have little immediate effect on his government.

Still, fallout from other European elections could have even more of an effect. Reuters reported Monday that one of the major parties on which Monti depends to implement austerity policies is calling for lesser austerity in the wake of Hollande’s election in France.

Stefano Fassina, economic spokesman for the center-left PD party, said that Italy should react to Hollande’s victory by relaxing austerity policies, raising its deficit targets and holding off on its approval of new and tougher European Union (EU) rules regarding public finance.

Fassina was quoted saying that Hollande’s election provided a chance for Italy to end "mistaken economic policy choices." He added that Monti should "delay parliamentary approval of the EU fiscal compact and at the same time slow the process towards deficit reduction." Fassina also advocated a major boost in public investment.

Even though Monti has been among those European leaders advocating that austerity requirements not drive out all thought of a need for growth, Fassina is far more outspoken against austerity measures. He is also responsible for his party’s official position on economic policy. His PD party compelled Monti to modify the original version of his labor market reform policy, still to be voted on by Parliament, by changing its specifications on easing firing restrictions.

Fassina also said Hollande's victory marked "a defeat for the blind austerity advocated by the European Central Bank which is dragging everyone down, and so we must go in the opposite direction, the one that can save us from a shipwreck."